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EMMPRESA CUBANA DEL TABACO v. CULBRO CORPORATION

June 26, 2002

EMMPRESA CUBANA DEL TABACO, D.B.A. CUBATABACO, PLAINTIFF, AGAINST CULBRO CORPORATION AND GENERAL CIGAR CO., INC., DEFENDANTS.


The opinion of the court was delivered by: Robert W. Sweet, United States District Judge

    OPINION

Defendants General Cigar Holdings, Inc. (the legal successor in interest to named defendant Culbro Corporation) and General Cigar Co. Inc. (collectively "General Cigar") have moved pursuant to Rule 56 of the Federal Rules of Civil Procedure for summary judgment to dismiss the complaint of plaintiff Empresa Cubana del Tabaco d.b.a. Cubatabaco ("Cubatabaco") on the basis of estoppel, acquiescence, and laches due to Cubatabaco's alleged long delay in challenging General Cigar's use and registrations of the COHIBA trademark. Cubatabaco has moved (1) to strike General Cigar's affirmative defenses of estoppel, acquiescence, and laches; and (2) for partial summary judgment on its claims of abandonment and under Articles 7 and 8 of the General Inter-American Convention for Trademark and Commercial Protection ("IAC" or "Inter-American Convention"), Article 6bis of the Paris Convention for the Protection of Industrial Property ("Paris Convention"), New York common law, and the Trademark Dilution Act.

For the following reasons, these motions are denied in part and granted in part.

Parties

Cubatabaco is a company organized under the laws of Cuba with its principal place of business in Havana, Cuba. Directly, and through its licensee, Habanos, S.A., Cubatabaco exports tobacco products from Cuba throughout the world, excluding the United States because of the current trade embargo. It was established by the Cuban government as an independent entity with its own assets and administration and is subject to the jurisdiction of a Cuban ministry.

Culbro has been merged into and is survived by General Cigar Holdings, Inc. General Cigar Holdings is a Delaware corporation with its principal place of business in the county of New York and functions as a holding company for General Cigar Co. Inc.

General Cigar Co. is a Delaware corporation with its principal place of business in Bloomfield, Connecticut. General Cigar Co. is in the business of manufacturing, marketing, advertising and distributing tobacco.

General Cigar and its predecessors in interest have been major U.S. manufacturers and distributors of cigars for more than a century.

Prior Proceedings

Cubatabaco filed its complaint on November 12, 1997, alleging that Cubatabaco possessed a COHIBA mark for its cigars that was "well-known" in the United States at the relevant time, and that General Cigar's efforts to exploit and trade upon Cubatabaco's COHIBA mark in order to generate profits on the sale of its own cigars entitled Cubatabaco to relief under the Paris Convention, Arts. 6bis and 10bis; the Inter-American Convention, Arts. 7, 8, 20 and 21; section 43(a) of the Lanham Act, 15 U.S.C. § 1125(c)(1) and 1125(a); and New York State law.

On December 11, 1997, the parties in settlement discussions entered into a written agreement that, inter alia, (1) the actions of both parties in this court and in the U.S. Patent and Trademark Office ("PTO") are "stopped"; (2) "the time spent during the negotiation will not be used by any of the parties to the detriment of the other, in case there is no [settlement] agreement;" and (3) "use of General Cigar's COHIBA trademark as from the signing of this Contract will not be used in detriment of Cubatabaco if agreement is not reached." The parties reported this agreement to the Court on December 16, 1997, and, at their request, all proceedings were stayed, including discovery, until litigation was renewed in February 2000.

By order dated December 5, 2000, Counts V (Article 22 of TRIPS), VI (Article 10 of the Paris Convention), VIII (false representation of origin in violation of Section 43(a) of the Lanham Act) and IX (deceptive advertising in violation of Section 43(a) of the Lanham Act) were dismissed with prejudice in light of the decision in Havana Club Holding S.A. v. Galleon S.A., 203 F.3d 116, 124 (2d Cir. 2000).

General Cigar filed the instant motion for summary judgment on the basis of its equitable defenses on November 29, 2001. On January 29, 2002, Cubatabaco filed its motions for summary judgment to dismiss General Cigar's equitable defenses and for summary judgment on its claims under Articles 7 and 8 of the IAC; Article 6bis of the Paris Convention; the Federal Trademark Dilution Act; and New York common law. The motions were heard on March 13, 2002, and were considered fully submitted at that time.

Facts

The following facts are taken from the parties' Rule 56.1 statements*fn1 and, as required, are construed in the light most favorable to the non-movant, as applicable. They do not constitute findings of fact by the Court.

I. The Cuban COHIBA

In 1969, Cubatabaco filed an application to register the "COHIBA" mark in Cuba. By 1970, cigars branded with Cubatabaco's COHIBA trademark were being produced at the El Laguito factory in Havana. The cigar box and band bore a distinctive design developed for the COHIBA cigar as well as the COHIBA trademark. The registration issued on May 31, 1972.

Throughout the 1970's, Cuban COHIBA cigars were commercially available and sold in Cuba at Havana's main hotels, upscale restaurants and two retail outlets. From 1970 to 1975, Cubatabaco claims that annual sales at the two retail outlets in Havana averaged approximately 100,000 cigars and increased to approximately 180,000 cigars per year by 1975. In addition, since at least 1970, COHIBA cigars had been sold to the Cuban Council of State, which includes the office of the Cuban President and to another Cuban state enterprise which in turn sold the cigars to Cuban Ministries and other government institutions.*fn2 Cubatabaco claims that the total volume of sales grew from approximately 350,000 to 375,000 per year from 1970 to 1975 to approximately 550,000 to 600,000 per year from 1975 to 1980. There are no records of these sales, however, as Cubatabaco has a policy of destroying its sales and production records after five years.

On November 15, 1977, Forbes magazine published an article on the impact of Cuban cigars on the U.S. industry that noted that Cubatabaco was developing a Cohiba cigar. General Cigar's principal executives read this article.

By January 1978, Cubatabaco had made application to register COHIBA in 17 countries, including most of the Western European countries.*fn3 The applied-for registrations issued in due course. Cubatabaco did not, however, sell COHIBA cigars outside of Cuba until 1982.

On February 6, 1978, a New York magazine article featured Cubatabaco and COHIBA cigars. In the article, Cubatabaco commented that it would be commercially possible for Cubatabaco to sell cigars in the United States successfully under new brands if, as it appeared to be the case, it would not be able to sell under the historic trademarks it preferred as a result of the Menendez litigation, which is described infra in Part III. Cubatabaco stated, "We have the unassailable trademark . . . the one which says `Havana' or `Made in Cuba,' and that is the only one we need."

The Miami Herald's Sunday magazine, Tropic, also reported on the COHIBA cigar on March 19, 1978.

In July 1981, Cubatabaco announced that it would soon begin commercial exports of COHIBA in Cubatabaco International (July-December 1981), published in English for the foreign cigar trade. The COHIBA cigar was on the issue's front cover. In this publication, Cubatabaco expressly positioned COHIBA as the pinnacle of Cuban cigars.

In January 1982, The Spanish trade publication, Actualidad Tabquera reported that Cuba would soon begin international sales of the "famous cigar Cohiba." In June 1982, El Pais, a general circulation paper, reported on the imminent arrival of COHIBA in Spain.

On June 30, 1982, Cubatabaco launched COHIBA's international commercial sales at an event in Madrid during the World Cup.

In 1983, Cubatabaco sought to register the COHIBA mark in the United States for the first time. In August 1984, its United States attorneys (Lackenbach, Siegal, Marzullo, Pesa & Aronson ("Lackenbach")) informed Cubatabaco that General Cigar had already obtained the registration on February 17, 1981.

On February 22, 1985, Cubatabaco filed an application with the PTO to register in the United States the BEHIQUE mark with the same trade dress it used on COHIBA cigars.*fn4

In 1987, Cubatabaco sought and obtained an opinion from Lackenbach on whether to begin legal proceedings over the COHIBA registration. Thereafter, Cubatabaco learned that General Cigar had filed a Declaration of Use and Incontestability for its COHIBA registration under Sections 8 and 15 of the Lanham Act in 1986 in connection with its 1981 registration for COHIBA. Cubatabaco chose not to take any action against General Cigar.

In a November 1992 interview with Padron, published in the Spring 1993 Cigar Aficionado, Francisco Padron, director of Cubatabaco, replied to a question regarding the company's future strategy for Cuban cigars. The magazine included the following purported exchange:

CA: Many American smokers don't realize that there are two brands of Partagas, a Partagas in America from the Dominican Republic and a Partagas sold around the world from Cuba. Assuming that tomorrow the embargo was lifted, how would it work?
Padron: We are not going to have two brands over there. Not even in Europe. We decided to break off our deal with Davidoff because of that. So what would happen is that we would launch new things for the North American market, new brands. Or we could make an arrangement with the brand owners there.
CA: General Cigar, as an example, owns the brand names Partagas, Ramon Allones and Cohiba for the U.S. market, and it has tremendous distribution in the United States. I would imagine that they would love to sit down with you and work it out to represent those brands of Cuban cigars in America. Is this possible or a problem? You are shaking your head no.
Padron: The first condition is that they must pass the brand name to us. This is the first condition Immediately. If not, forget about it. Second condition, they must be our partner the same way that we have it with the rest of the world. There is no other way to make a deal with us. If not, forget about it.

Padron also stated:

We want to have [a] Habano cigar, not a brand name. It doesn't matter if it is Bolivar, Montecristo or even Cohiba. For the last four years, we have been telling the connoisseur how to recognize a Havana. When we launched the smoke ad we just put Havana, no Habanos. We think the most important thing is the umbrella that can cover all brand names. We can create a brand name whenever we want.

II. General Cigar's 1981 Registration

General Cigar first learned of the name "COHIBA" in the late 1970's. General Cigar executives had read the Forbes article discussed above. In addition, a December 1977 internal memorandum refers to COHIBA as "sold in Cuba/brand in Cuba" and "Castro's brand cigars."*fn5

In February 1978, General Cigar employee Oscar Boruchin ("Boruchin") discussed the COHIBA brand with Edgar Cullman Jr. ("Cullman"), chairman of Culbro. Boruchin purportedly had learned of COHIBA from a friend who visited Cuba on behalf of the State Department during the Carter Administration and was given COHIBA cigars in Cuba by "the highest echelons of government."

On March 13, 1978, General Cigar filed an application to register "Cohiba," with a claimed first use date of on or before February 13, 1978. Before or after pursuing this application, General Cigar did not request counsel to conduct a trademark search in Cuba or internationally, which would have disclosed the Cuban registrations. There is evidence to suggest that such a search would not have been industry practice in these circumstances.*fn6

It is a disputed issue as to whether the COHIBA name was well-known at this time. Boruchin testified that he told Cullman that "[n]obody knew the brand," and it was "not on the market," "didn't mean anything to anybody," and was "just given to visitors, diplomats." Cubatabaco states, however, COHIBA cigars were wellknown in the United States cigar industry and among the public because of the two magazine articles mentioning COHIBA. Further, numerous United States journalists, business executives, and others knew of the brand from seeing it on sale in retail outlets and hotels in Havana, from receiving it as gifts in Cuba and at receptions in the United States, and by word of mouth.

On July 25, 1978, the U.S. Patent and Trademark Office ("PTO") asked General Cigar "whether the term COHIBA has any meaning or significance in the relevant trade or industry." General Cigar answered in the negative.

On March 20, 1979, the PTO, in another Office Action, noted, "Cohiba is a geographical tobacco growing region of Cuba," and stated that the COHIBA application would be refused as either geographically descriptive or misdescriptive, depending on whether the goods were from Cohiba. In a September 14, 1979 response, General Cigar asserted that COHIBA was "wholly arbitrary" and "fanciful and arbitrary," which Cubatabaco claims General Cigar clearly knew to be false.

III. The Growth of Parallel Brands as a Result of the Cuban Revolution and Cuban Embargo

General Cigar alleges that COHIBA represents another example of a "parallel brand" that resulted from the Cuban Revolution and the subsequent embargo.

On January 1, 1959, Fidel Castro seized control of the Cuban government. The new government seized privately-owned cigar manufacturers on September 15, 1960. Some of the ousted Cuban cigar owners reestablished their businesses abroad using the trademarks their families had owned before the government seizure.

In 1963, the U.S. government imposed an embargo on trade with Cuba, prohibiting anyone subject to the jurisdiction of the U.S. from transporting, importing or otherwise dealing in or engaging in any transaction with respect to merchandise "of Cuban origin." 31 C.F.R. §§ 515.101 et seq. (1999) (the "Embargo").

Although the embargo prevented Cuban entities such as Cubatabaco from selling cigars and other Cuban products in the United States, it did not prevent them from registering or protecting trademarks, trade dress and other intellectual property in the United States. In fact, Cubatabaco has aggressively protected its intellectual property in the United States.*fn8

In a series of cases in the 1960's and early 1970's (the "Menendez litigation"), U.S. courts upheld rights of the former owners of Cuban cigar trademarks in the United States against claims of the Cuban government and governmental entities. The courts determined that the owners of the expropriated Cuban cigar companies retained ownership of the pre-expropriation common law trademark rights obtained by their pre-expropriation sale of cigars in the United States under those trademarks and the appurtenant good will. The courts so ruled on the ground that the United States would not give extraterritorial effect to takings without compensation and hence would not give legal effect to the Cuban expropriations of the cigar companies as applied to trademark registrations and common law rights existing in the United States at that time. F. Palicio Compania, S.A. v. Brush, 256 F. Supp. 481 (S.D.N.Y. 1966), aff'd 375 F.2d 1011 (2d Cir. 1967); Menendez v. Faber, Coe & Gregg, 345 F. Supp. 527 (S.D.N.Y. 1972), aff'd in part and rev'd in part sub nom. Menendez v. Saks & Co., 485 F.2d 1355 (2d Cir. 1973), cert. granted as to certain questions, 416 U.S. 981 (May 13, 1974); reargued Jan. 19, 1975; rev'd in part and cert. controverted in part sub. nom. Alfred Dunhill of London v. Republic of China, 425 U.S. 682 (1976).

COHIBA's situation is different from those of the brands in the Menendez litigation, as the COHIBA brand was not originally a privately owned company prior to the Revolution and embargo, nor was it sold in the United States prior to that time. COHIBA therefore did not involve an expropriated owner seeking to use its U.S. trademark while the Cuban government continued to use the Cuban and other trademarks. It is true, however, that the Cuban COHIBA is sold around the world and in Cuba, while cigars under the same apparent mark are sold in the United States by a different, unrelated entity.

IV. Sales of General Cigar's COHIBA-Branded Cigars From 1978 to 1997

From 1978 to 1997, General Cigar sold three different pre-existing cigars — the White Owl, the Canario D'Oro, and the Temple Hall as a "COHIBA cigar" by placing a COHIBA label on the cigars.

A. 1978-1982: COHIBA-Branded "White Owl" Cigars

Beginning in 1978, General Cigar shipped 1,000 or fewer COHIBA-branded cigars per year.*fn9 The cigars were White Owl "stock" machine-made cigars that were shipped along with other White Owl cigars (or other "seconds") labeled with as many as 32 other different brands as part of a "trademark maintenance program."

The cigars were irregularly and sporadically shipped to two retailers who, by pre-arrangement, were given a full credit back on the nominal payment they made to General Cigar. Two boxes of 50 cigars of each of the 33 brands were simultaneously shipped in identical cardboard boxes, with stick-on labels affixed to two boxes for each of the 33 different brands. These shipments were not sent out when "seconds" were not available.

The cardboard boxes with the different labels, including "COHIBA," were sold in the same cartons they were in with a sign stating the price per box. If the two boxes with the COHIBA label were at the bottom of the box, they would not have been visible to the consumer.

General Cigar sold the following amounts of COHIBA-branded White Owl cigars during this period:

1978: 650
1979: 600
1980: 1,000
1981: 700
1982: 200 (single shipment on April 15, 1982)
B. 1982-1987: COHIBA-Branded "Canario D'Oro" Cigar

On June 23, 1986, General Cigar filed a sworn "Declaration Under Sections 8 and 15 of the Trademark Act of 1946" for its COHIBA registration, in which it attached a "specimen showing the mark as currently used" (the packaging in which the Canario D'Oro was sold as of November 1982). As part of the requirement to establish incontestability under Section 15, General Cigar declared that "the mark shown therein has been in continuous use in interstate commerce for five consecutive years from February 17, 1981 to the present."

On November 3, 1986, the PTO granted "incontestability status" to General Cigar's COHIBA mark.

Sales of the COHIBA-branded Canario D'Oro ceased sometime in 1987.

General Cigar sold the following amounts of COHIBA-branded Canario D'Oro cigars during this period:

1982: 90,000 (Nov. and Dec. only)
1983: 323,000
1984: 118,000
1985: 70,000
1986: 5,000
1987: 3,000*fn10

C. Period of No Sales from 1987 to 1992

General Cigar itself*fn11 made no sales under the COHIBA name for at least five years, from sometime in 1987 until November 20, 1992.

It is disputed whether during this time period General Cigar abandoned its earlier registration of COHIBA or merely stopped selling a lower-quality version in order to make plans for a higher priced, "super-premium"*fn12 version.

General Cigar claims that it decided to convert COHIBA from a "bundled" cigar into a premium cigar that would be sold in wooden boxes and used as one of General Cigar's principal brands, and that it stopped shipping the non-premium cigars from 1986 to 1992 to develop the premium brand of COHIBA. Cubatabaco alleges, however, that General Cigar did not begin working with an outside consultant to develop the premium COHIBA until September 1992, six years later.

It is undisputed that the following events occurred during this time period.

In April 1989, General Cigar sought to use the word mark "COHIBA" in conjunction with the identical copying of the Cuban COHIBA trade dress. Counsel advised in July 1989 that the trade dress was already registered, and based on this legal advice, General Cigar determined not to use the identical trade dress.

On November 9, 1990, General Cigar sent a cease and desist letter, asserting that the use of the name "COHOBA" for cigars infringed on General Cigar's "considerable rights in [its 1981 COHIBA] registration."

In December 1991, General Cigar again considered using an element of the Cuban COHIBA trade dress, the so-called "Indian Head" design. Outside counsel advised against it, and in-house counsel informed the marketing department that "We are out of luck on the use of the Indian Head design." The outside counsel in April 1989 and December 1991, advised General Cigar that either non-use or mere token use of a mark was insufficient to sustain rights and would constitute abandonment.

D. 1992-1997: The COHIBA-Branded "Temple Hall" Cigar

On September 1, 1992, the premiere issue of Cigar Aficionado was published, with a distribution of 115,000 copies*fn13 and display at 453 cigar outlets. The premier issue was introduced to the trade on August 27, 1992, at a breakfast held by Cigar Aficionado at the annual convention of the Retailer Tobacco Dealers of America ("RTDA"), the principal retailers' association. Complimentary copies of the premier issue were distributed to the 300 to 400 attendees.

The issue featured the Cuban COHIBA in a six-page cover story about "Cuba's Best Cigar," entitled "The legend of Cohiba: Cigar Lovers Everywhere Dream of Cuba's Finest Cigar."*fn14 On September 21, 1992, Newsweek ran an article on Cigar Aficionado's launch, noting that COHIBA was the initial winner of the magazine's first "blind tastings" feature, and that the first issue had featured ads for premium products such as Glenlivet single-malt scotch, Louis Vuitton luggage "and, of course, COHIBA cigars."*fn15 Cubatabaco claims that General Cigar decided in the fall of 1992 to sell a new product under the COHIBA name "to somehow capitalize on the success of the Cuban brand and especially at this point in time the good ratings that it got, the notoriety that it got from Cigar Aficionado." General Cigar states that it had always intended to resume use of the COHIBA mark.

In September 1992, defendants began to work with an outside graphic designer, Cliff Bachner ("Bachner") on the trade dress of the new COHIBA. John Rano, General Cigar's head of marketing, instructed Bachner to make "exactly same" copies of the Cuban COHIBA trade dress. Bachner did as instructed, but General Cigar states that it never used those prototypes in commerce.*fn16 Milstein, who was Assistant General Counsel for General Cigar at that time, testified in deposition that General Cigar wanted to use a label as near as possible to the Cuban COHIBA "for the same reason they wanted to use it in `89 and again in `91," that is "they wanted to somehow capitalize on the success of the Cuban brand, and especially at this point in time the good ratings that it got, the notoriety that it got from Cigar Aficionado." Milstein Dep. at 284.

In the first week of November 1992, Ron Milstein, General Cigar's then Assistant General Counsel ("Milstein"), and Alfons Mayer, General Cigar's Vice President for Tobacco ("Mayer"), traveled to Havana, Cuba, at the invitation of Cubatabaco to attend an international conference in Havana for the 500th anniversary of the European discovery of tobacco, which included the launch of a new line of COHIBA cigars, "Siglo (Century) 1492." In a private meeting, Mayer informed Padron of General Cigar's interest in entering into a broad and exclusive partnership with Cubatabaco for the United States territory upon the embargo's end, which would replicate the 51/49 partnership for distribution of Cuban cigars that Cubatabaco had created in the rest of the world. COHIBA was not mentioned during the meeting. Milstein wrote of the meeting:

We met with Mr. Padron for 1 hour over breakfast. The talk was of the Consolidated sale rumor. We got no more information. Mr. Padron made it very clear that trademarks are not important. He said Havana will sell cigars no matter what name they have. Any companies that have marks (this was directed to G.C.) would have to sell (give) the marks back to Cubatabaco and get distributorship rights only, or else Cubatabaco will sell the cigars under a new name.

While at the conference, Milstein was introduced to Adargelio Garrido, a Cubatabaco attorney ("Garrido"). Milstein did not speak Spanish and Garrido, a native Spanish speaker, had not studied English at the time. General Cigar claims that a conversation took place between the two men. The evidence of this meeting is a memorandum Milstein wrote two weeks after the meeting.*fn17 Milstein wrote that Garrido "acknowledged that we owned the name in the U.S. and that we would be free to sell a cigar under that name there." Milstein's memorandum also indicated that Garrido stated that Cubatabaco would object to any use General Cigar made of the trade dress associated with Cubatabaco's COHIBA cigars. Cubatabaco raises several objections to this evidence.*fn18

In November 1992, General Cigar began to sell a COHIBA cigar again by relabeling its pre-existing "Temple Hall" cigar. This COHIBA was a medium-priced cigar. General Cigar made no reference to its earlier "COHIBA" product, and the trade dress was completely different. The cigars were sold only at Alfred Dunhill of London, an upscale retailer ("Dunhill"), and Mike's Cigars, a Florida retailer, wholesaler, and mail-order distributor. In 1992, General Cigar sold through ...


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